Mumbai/ New Delhi: Corporate India’s credit quality and improved ratings are expected to be better in 2014-15 than in the previous year according to the two major credit rating agencies Crisil and Icra.
CRISIL on Wednesday said it believes that the ratio of ratings upgrades to downgrades may recover from the low levels seen last fiscal as pressure on profitability and demand eases. CRISIL downgraded ratings of 1,165 firms and upgraded those of 921 in the last fiscal. Icra echoed the same sentiment saying “The fact that some of the highly leveraged entities are making efforts to monetise their assets and are now more cautious while bidding for new projects also marks a positive development from the credit perspective.”
It further said that even banks have adopted a more cautious approach to lending, given their concerns over non-performing assets (NPAs) and capital requirements.
According to Crisil around 90 per cent of the downgrades was on account of slowing demand, tight liquidity, and stretched working capital cycles. Companies in investment-linked sectors such as power, construction, engineering and capital goods, and transport had more downgrades than firms in other sectors.
However, the rating agency added that the overall credit quality will be far from buoyant in the near term, given the fragile economic growth and limited scope for reduction in interest rates.
According to ICRA while a significant upturn is not foreseen, most sectors like infrastructure (especially power), building materials, capital goods, engineering, auto and auto ancillaries, hotels, sugar and textiles-are likely to witness moderation both in the number and severity of rating downgrades.
An analysis by ICRA of its 7,000 ratings for just concluded 2013-14 shows the downgrades continued to exceed upgrades for the third consecutive year. The sectors which showed relatively higher stress, include hotel, power, sugar, metals and mining, engineering among others and they accounted for around 51 per cent of the total downgrades during 2013-14.
Crisil’s senior director, Pawan Agrawal said a “Significant improvement in credit ratio is possible only if there is strong and sustainable recovery in investment as well as in consumption demand.”
